"War," wrote von Clausewitz, "is the continuation of politics by other means." But lately, it seems the reverse is also true: Politics is affecting how nations prepare to wage war.
On Monday, March 8, Northrop Grumman (NYSE: NOC ) called a halt to its bid to build the nation's next aerial refueling tanker. In so doing, it would appear to have handed Boeing (NYSE: BA ) a victory in its decade-long struggle to build the KC-X, without even putting up a fight. The battle ended not with a bang, but a whimper.
Not so fast, Tex
Or did it? No sooner had Northrop announced its withdrawal from KC-X, than a firestorm of criticism broke out across the Atlantic. On Friday, British Prime Minister Gordon Brown and French President Nicolas Sarkozy tag-teamed the Obama administration with a series of declamations against "protectionism" in the KC-X requisition process. To hear the Europeans tell it, the Pentagon deliberately hamstrung the joint Northrop-EADS bid in order to benefit Boeing.
Of course, this begs the question why Northrop-EADS couldn't simply offer to build a smaller airplane if it felt the recent round of Pentagon specs favored smaller aircraft designs. (After all, after losing the first round of the competition, Boeing was said to be mulling a larger 777-based offering if the Pentagon confirmed its desire for a big airplane.)
But even if the Pentagon did draft the revised KC-X specs in a manner that favored the smaller Boeing 767-based design over Northrop-EADS' A330 derivative offered ... so what? It had every right to do so. The idea that a contractor like Northrop can tell its customer what kind of plane it must buy is patently absurd. And the concept of one sovereign nation dictating to another how it should equip its military? Even more so.
If the U.S. Air Force decided that it preferred to buy a smaller tanker, which would cost less to fly and could land on more numerous, and smaller, airfields, then that should be that. End of story.
The Clausewitzian gambit
But to this Fool's eye, that's just the point. Just as the U.S. has little leverage over recent European moves to restrict the activities of U.S.-based hedge funds on the Continent -- a move that would add extra regulation for companies like Blackstone (NYSE: BX ) and the operations of many large U.S. banks -- so too are the Europeans hamstrung by their inability to dictate U.S. defense policy.
Now, Brown and Sarkozy must be aware that they lack a legal leg to stand on in this dispute. Were the U.S. to try and tell Britain and France how to equip their military, we'd promptly be told to go jump in the Atlantic. What's key here is the subtext to the Euro-protestations. In the words of Sarkozy: "Such methods by the United States are not good for ... the United States ... If they want to be heard in the fight against protectionism, they should not set the example of protectionism."
Translation: Turnabout is fair play. If you don't want to buy our airplanes, fine. But don't be surprised if, next time we're in the market for an MRAP, we snub Force Protection (Nasdaq: FRPT ) . Or if we upgrade our air defense systems, we decide Raytheon's (NYSE: RTN ) offerings just aren't up to snuff.
Read between the lines. Read between the press releases
The subtext to Sarkozy's threat became apparent Monday, when EADS announced its intention to market the recently bailed-out A400M military transport outside of Europe. EADS suggests that the U.S. will be a "key" target of its sales force, potentially yielding as many as 210 unit sales of the transport.
(Hint, hint.)
Ah, but will the Pentagon take the hint? Every year in Washington, we see Boeing come before a Congress blustering over plans to cut purchases of the company's C-17 Globemaster transport. Congress tells Boeing it neither needs nor can afford more transports. Boeing replies that it had better find the money, or Boeing won't be able to build the plane at all. Usually, Congress then digs around in the sofa cushions for a few hundred million in spare change, and orders a handful of C-17s. But it's always a struggle, and it's never something on the order of a 210-plane order. For comparison, there's only 205 C-17s deployed to the U.S. military or in production.
Still, EADS' sales pitch is not entirely without merit. The plane does fill a "size gap" between Lockheed Martin's (NYSE: LMT ) C-130J transport and Boeing's hulking C-17. I suspect that if Congress thinks real hard, it can find an argument to justify taking a few A400M's off EADS' hands in a gesture of goodwill. And if in so doing, it can defuse a rapidly escalating trans-Atlantic conflict, and secure the future for shareholders in America's defense companies, I suspect that might be a deal worth making.
After all, war may be politics by other means. But politics is itself the art of compromise.
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